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crimeandpunishment writes "Attorneys for Facebook and a New York man claiming majority ownership of the site faced off in a Buffalo courtroom Tuesday, and if Facebook gets its way there won't be too many more days in court. The site wants to get Paul Ceglia's claim thrown out of court. He claims a seven-year-old agreement with Facebook founder Mark Zuckerberg entitles him to 84 percent of the company. Facebook acknowledges Ceglia and Zuckerberg worked together, but says the contract Ceglia submitted was full of 'things that don't make sense.'"

He'd be lucky if he was stoned. He might be able to weasel out based on not having the capacity to make a binding contract.

"Competency and Capacity

A natural person who enters a contract possesses complete legal capacity to be held liable for the duties he or she agrees to undertake, unless the person is a minor, mentally incapacitated, or intoxicated. "

If Ceglia covered all of those things in this one, then he's got a valid contract and is going to score.

if he missed even one, or if he failed to carry out some of them, then he's going to become a trivia question.

From the claims he's made, it sounds like he has the basics down. It's claimed the thing was signed, so the offer was made and accepted (in fact, it sounds like Zuckerberg made the offer). Capacity: if Zuckerberg was 18 and owned the website, that's enough. Consideration: Ceglia traded money for ownership rights; so both sides got value from the deal, and fair value at the time, plus the agreed-upon increase in ownership as the project was delayed. Purpose and form: simple trade of cash for ownership; an investment; happens all the time without event. Intention to create legal relations: it's not as though anyone was forced or tricked into this. Consent: Zuckerberg was the one who entered into the deal.

So it's down to what wikipedia calls Vitiating Factors, and that's where his lawyer is going to go. Things like the amount of time Ceglia waited, any informalities or irregularities in the documents, etc. And really, given the current value that Ceglia is chasing and Zuckerberg stands to lose, lawyers can find a lot of potentially vitiating circumstances to tie up the case in court.

The judge who gets the case first may skip all that and render summary judgment based on the hard evidence. Which I haven't seen so I won't play judge, yet.

Hopefully Zuckerberg will realize he's actually bound to comply with his agreement, and will find a way to settle with Ceglia. I doubt Ceglia will take less than 50%, but I won't be surprised if he takes that if he's offered it, and let the production delays slide. Unless he's hung up on a few $billion here and there...

Holy Smokes. He's got them by the balls. Unless they can find a state specific reason to invalidate the contract they are smoked beyond belief. There is no way they could make a settlement offer. This guy has a standard work for hire contract for Facebook. Zuckerberg never owned it, he was hired to develop it for $1000 dollars. I'll type up the key paragraph here as the PDF is a bitch to read:

"2. Entire AgreementThe contract between the Purchaser and Seller as a purchase agreement and "work made for hire" reflects two separate business ventures, the first being the work to be performed directly for the StreetFax Database and the Programming language to be provided by the Seller.Second it is for the continued development of the software, program and for the purchase and design of a suitable website for the project Seller has already initiated that is designed to offer the student of Harvard university access to a website similar to a live functioning yearbook with the working title of "The Face Book".

It is agreed that Purchaser will own a half Interest (50%) in the software, programing language and business interests derived from the expansion of that service to a larger audience."

It's a standard pull out of a book and make some modifications work for hire contract and it appears he had his lawyer review and modify before everyone signed. These things are generally pretty simple (the entire agreement is 2 pages long) and they are very legally binding generally as all the terms are previously tested and pulled from successfully litigated contracts. It's got everything from Patent indemnification to Liens to Subcontracting rights, it's a very thorough and succinct contract. This Ceglia guy is in a very very good position. From the terms he owns more than 80% of Facebook (due to a late opening). Any value that Zuckerberg sold came out of the percentage that Zuckerberg owned, not Ceglia's portion. IMO the reason there is no settlement is that Ceglia is in such a good legal position he has no reason to settle and Facebook either wins or loses the whole company. His company "StreetFax" owns Facebook lock stock and barrel. Zuckerberg was hired to develop it and manage it, that's it and all for $1000. Call that the best investment of all time.

All I can say is WOW. Zuckerberg is history. Might take a few years with all the Legal wrangling and Zuckerberg is going to get his ass sued for failing to disclose this contract when he took the VC money and he might even end up in Jail if the VC guys can convince the government to prosecute for fraud.

The list of requirements sounds really fancy and uses big words but it's actually very simple.

* Agreement (Offer and Acceptance)
One party offers and the other party accepts. As they both signed this one is simple.

* Consideration
This is code word for money. Both parties must get something out of the deal, if only one party benefits it's a gift not a contract. In this instance Zuckerberg got paid and the other guy got ownership.

* Legal purpose
* Legality of form
* Intention to create legal relations
All of these are broadly the same thing, both parties must have intended it to be a contract. In this example the document has contract written across the top, check.

* Capacity to contract
* Consent to contract
* Vitiating factors: Mistates, undue influence, misrepresentation, duress
This are all unusual circumstance clauses. If you are mentally disabled, five years old or currently have a blowtorch being applied to your testicles you can't sign a valid contract. It doesn't seem like any of these apply or are being cited.

In general common sense goes a long way with contracts. If you intend to make a contract, both agree and both benefit you have a contract.

I am not a lawyer but have studied some law at a university level, primarily contracts. If you take legal advice from people on slashdot even if they claim to be a lawyer you are an idiot.

P.S. Despite the title of that article being "The massive hole in Facebook's latest legal challenge", it fails to mention exactly what the "massive hole" is. It mentions the lawyers have never seen the contract, but then goes on to say the contract was included in the legal filing. It says that the contract occurred before the facebook idea was even thought up, even though the contract clearly references "the face book". I can't see any holes pointed out in that article.

My question: why didn't this come out like, say, 5 years ago instead of a full 7 years after facebook's launch?

As people pointed out in a previous story: Ceglia apparently had no reason to believe Zuckerberg was acting in bad faith until Zuckerberg tried to sell something Zuckerberg didn't own. Once that occurred, Ceglia could pounce (and did, like a three toed sloth, but well within the statute of limitations).

Lawyers know what things have to be in a contract to make it a contract. IANAL, so a little wikipedia check (ymmv) shows it's these things:

Wikipedia is not an authoritative source on many things. IANAL but contract law was part of my studies. Unless the US is vastly different from most other places, you need exactly one thing for a contract to come into existence. In german "eine beidseitige Willenserklärung", just in case I fuck up the translation: An intentional agreement between two parties.

All the rest, the form, the lawyer-speak, the bla-bla is just to make it easier to enforce. Oral contracts are as good as written contracts in theory, they are just more difficult to prove. A contract on the back of a napkin is as good as a 300-page legal document reviewed by two seperate legal departments - there's just a higher risk that it contains words you didn't mean like that.

Most of the stuff you list falls under the invalidation of "intentional" or "agreement", which are the most common attacks on contracts that you can't deny (e.g. they exist in written form or there are reliable witnesses). If you were tricked, for example, you can argue that there wasn't an agreement, because what the other party wanted and made you believe was not true.

if he missed even one, or if he failed to carry out some of them, then he's going to become a trivia question.

It ain't that simple. Contracts are regularily open to interpretation as it is semantically impossible to completely and 100% perfectly describe a non-trivial intention. Courts are used to that and it's not a checklist. "Oh, wrong word in paragraph four. You lost." Quite regularily, the courts try to divine the original intention of the parties, as that is what it's all about, and rule according to that. There are quite a list of famous contract law disputes that worked that out.

But, as you said, the main issue will be that the lawyers on the defending side will try to tie this up in court. I don't see how they can win it, but they sure can delay it. Maybe long enough for Zuckerberg to cash out.

HarvardAve pointed out a link with a copy of the filing below- which includes a copy of the signed contract.

The contract seems to be a typical one lifted from a form book, with a few small hand written amendments that are illegible in the pdf. It is signed by both parties, and the terms seem very clear- I was under the impression this was drafted by ceglia himself.

I am now changing my position- unless this is an outright forgery, this claim seems 100% legit- they even state the name as "the facebook."